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1 THE ARTS CHILD POLICY CIVIL JUSTICE EDUCATION ENERGY AND ENVIRONMENT HEALTH AND HEALTH CARE INTERNATIONAL AFFAIRS NATIONAL SECURITY POPULATION AND AGING PUBLIC SAFETY SCIENCE AND TECHNOLOGY This PDF document was made available from as a public service of the RAND Corporation. Jump down to document6 The RAND Corporation is a nonprofit research organization providing objective analysis and effective solutions that address the challenges facing the public and private sectors around the world. SUBSTANCE ABUSE TERRORISM AND HOMELAND SECURITY TRANSPORTATION AND INFRASTRUCTURE WORKFORCE AND WORKPLACE Support RAND Purchase this document Browse Books & Publications Make a charitable contribution For More Information Visit RAND at Explore RAND Health View document details Limited Electronic Distribution Rights This document and trademark(s) contained herein are protected by law as indicated in a notice appearing later in this work. This electronic representation of RAND intellectual property is provided for non-commercial use only. Permission is required from RAND to reproduce, or reuse in another form, any of our research documents.

2 This product is part of the RAND Corporation monograph series. RAND monographs present major research findings that address the challenges facing the public and private sectors. All RAND monographs undergo rigorous peer review to ensure high standards for research quality and objectivity.

4 The research described in this report was conducted within RAND Health and sponsored by a consortium of private companies, including Cerner Corporation, General Electric, Hewlett-Packard, Johnson & Johnson, and Xerox. Library of Congress Cataloging-in-Publication Data Fonkych, Kateryna. The state and pattern of health information technology adoption / Kateryna Fonkych, Roger Taylor. p. cm. MG-409. Includes bibliographical references. ISBN (pbk. : alk. paper) 1. Health services administration Information technology. 2. Medical care Information technology. [DNLM: 1. Public Health Informatics trends. 2. Medical Informatics Applications. WA 26.5 F673s 2005] I. Taylor, Roger, MD. II. Rand Corporation. III.Title. RA F '028 dc The RAND Corporation is a nonprofit research organization providing objective analysis and effective solutions that address the challenges facing the public and private sectors around the world. RAND s publications do not necessarily reflect the opinions of its research clients and sponsors. R is a registered trademark. A profile of RAND Health, abstracts of its publications, and ordering information can be found on the RAND Health home page at Cover design by Barbara Angell Caslon Copyright 2005 RAND Corporation All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from RAND. Published 2005 by the RAND Corporation 1776 Main Street, P.O. Box 2138, Santa Monica, CA South Hayes Street, Arlington, VA North Craig Street, Suite 202, Pittsburgh, PA RAND URL: To order RAND documents or to obtain additional information, contact Distribution Services: Telephone: (310) ; Fax: (310) ;

5 Preface It is widely believed that broad adoption of Electronic Medical Record Systems (EMR-S) will lead to significant healthcare savings, reduce medical errors, and improve health, effectively transforming the U.S. healthcare system. Yet, adoption of EMR-S has been slow and appears to lag the effective application of information technology (IT) and related transformations seen in other industries, such as banking, retail, and telecommunications. In 2003, RAND Health began a broad study to better understand the role and importance of EMR-S in improving health and reducing healthcare costs, and to help inform government actions, if any, that could maximize EMR-S benefits and increase their use. This report provides the technical details and results on the current state and dynamics of clinical Health Information Technology (HIT) adoption in inpatient and outpatient settings. In addition, it describes how a HIT-adoption pattern varies across different types of providers and relates market factors and parent-system characteristics to HIT-adoption level. The results of this report can be used to derive policies on HIT adoption. Related documents are as follows: Richard Hillestad, James Bigelow, Anthony Bower, Federico Girosi, Robin Meili, Richard Scoville, and Roger Taylor, Can Electronic Medical Record Systems Transform Healthcare? Potential Health Benefits, Savings, and Costs, Health Affairs, Vol. 24, No. 5, September 14, Roger Taylor, Anthony Bower, Federico Girosi, James Bigelow, Kateryna Fonkych, and Richard Hillestad, Promoting Health Information Technology: Is There a Case for More-Aggressive Government Action? Health Affairs, Vol. 24, No. 5, September 14, James Bigelow et al., Technical Executive Summary in Support of Can Electronic Medical Record Systems Transform Healthcare? and Promoting Health Information Technology, Health Affairs, Web Exclusive, September 14, iii

6 iv The State and Pattern of Health Information Technology Adoption James Bigelow, Kateryna Fonkych, Constance Fung, and Jason Wang, Analysis of Healthcare Interventions That Change Patient Trajectories, Santa Monica, Calif.: RAND Corporation, MG-408-HLTH, Federico Girosi, Robin Meili, and Richard Scoville, Extrapolating Evidence of Health Information Technology Savings and Costs, Santa Monica, Calif.: RAND Corporation, MG-410-HLTH, Richard Scoville, Roger Taylor, Robin Meili, and Richard Hillestad, How HIT Can Help: Process Change and the Benefits of Healthcare Information Technology, Santa Monica, Calif.: RAND Corporation, TR-270-HLTH, Anthony G. Bower, The Diffusion and Value of Healthcare Information Technology, Santa Monica, Calif.: RAND Corporation, MG-272-HLTH, The report should be of interest to healthcare IT professionals, other healthcare executives and researchers, and officials in the government responsible for health policy. This work was sponsored by a generous consortium of private companies: Cerner Corporation, General Electric, Hewlett-Packard, Johnson & Johnson, and Xerox. A steering group headed by Dr. David Lawrence, a retired CEO of Kaiser Permanente, provided review and guidance throughout the project. The right to publish any results was retained by RAND. The research was conducted in RAND Health, a division of the RAND Corporation. A profile of RAND Health, abstracts of its publications, and ordering information can be found at

7 Contents Preface... iii Figures... vii Tables... ix Summary... xi Acronyms... xiii CHAPTER ONE Introduction and Review of the Literature...1 Introduction...1 Literature Findings on Factors That Relate to HIT Adoption and the Influence of HIT...2 CHAPTER TWO Estimates of Current HIT Adoption and of HIT Diffusion...7 Approach...7 Estimated Adoption of Major Clinical HIT System Components...9 Dynamics of the HIT Diffusion Process...14 HIT-Adoption Estimates from Alternative Sources...15 Surveys on the Factors That Enhance or Create Barriers to HIT Adoption...19 CHAPTER THREE Factors Related to HIT Adoption...23 Method...23 The Pattern of HIT Adoption in For-Profit as Opposed to Non-Profit Hospitals...24 Hospital Type...26 Size and Rural Status of the Hospital...27 Medicare and Medicaid...28 Managed Care Status...31 v

8 vi The State and Pattern of Health Information Technology Adoption System-Level Factors and Regional Factors...33 Competition...37 Community and Quality Orientation of the Hospital...38 Link to Primary Care...40 Factors That Influence HIT Adoption in Ambulatory Clinics...41 Multivariate Regression Analysis for HIT Adoption in Acute Care Hospitals...43 CHAPTER FOUR Summary of Results and Conclusions...49 References...51

9 Figures 2.1. Adoption of Basic EMR, Combined with Other Clinical HIT Applications Diffusion of Inpatient EMR, CPOE, and PACS, and of Ambulatory EMR Systems HIT Adoption by AHA Hospital-Bed-Size Category Clinical HIT Adoption in Hospitals with a Majority or a Minority of Medicare Patients Clinical HIT Adoption in Hospitals by Share of Medicaid Patients Equity Investment in HMO or PPO by Hospital or Hospital System, and by Clinical HIT Adoption HIT Adoption Among Hospitals That Belong to Smaller or Larger Hospital Systems HIT Adoption in Contract-Managed Hospitals HIT Adoption in Healthcare Systems (HS) of Different Types Size of the Metropolitan Area and HIT Adoption Correlation of HIT Adoption with the Index of Market Concentration (the Inverse of Competition), by the Profit Status of the Hospital Adoption in Systems and Hospitals with a Primary Care Department Adoption of HIT in Physician Practices, by Size Correlation of Ambulatory EMR Adoption Rate in a Healthcare System, with the System s Revenues Derived from Various Sources...42 vii

13 Summary Innovations in information technology (IT) have improved efficiency and quality in many industries. Healthcare has not been one of them. Although some administrative IT systems, such as those for billing, scheduling, and inventory management, are already in place in the healthcare industry, little adoption of clinical IT, such as Electronic Medical Record Systems (EMR-S) and Clinical Decision Support tools, has occurred. Government intervention has been called for to speed the adoption process for Health Information Technology (HIT), based on the widespread belief that its adoption, or diffusion, is too slow to be socially optimal. In this report, we estimate the current level and pattern of HIT adoption in the different types of healthcare organizations, and we evaluate factors that affect this diffusion process. First, we make an effort to derive a population-wide adoption level of administrative and clinical HIT applications according to information in the Healthcare Information and Management Systems Society (HIMSS)-Dorenfest database (formerly the Dorenfest IHDS+TM Database, second release, 2004) and compare our estimates to alternative ones. We then attempt to summarize the current state and dynamics of HIT adoption according to these data and briefly review existing empirical studies on the HIT-adoption process. By comparing adoption rates across different types of healthcare providers and geographical areas, we help focus the policy agenda by identifying which healthcare providers lag behind and may need the most incentives to adopt HIT. Next, we employ regression analysis to separate the effects of the provider s characteristics and factors on adoption of Electronic Medical Records (EMR), Computerized Physician Order Entry (CPOE), and Picture Archiving Communications Systems (PACS), and compare the effects to findings in the literature. The results of the analysis suggest high heterogeneity in HIT adoption, across HIT applications and types of providers, such as for-profit and non-profit hospitals. We discuss the hypotheses that explain our empirical findings and the forces behind HIT adoption, and we link hypotheses and forces to potential policy implications. Additional evaluation of HIT adoption at the level of healthcare systems, rather than xi

14 xii The State and Pattern of Health Information Technology Adoption their facilities, suggests the potential for system-based connectivity and future patterns of adoption.

16 xiv The State and Pattern of Health Information Technology Adoption POS ROA ROI SJCRH point of service return on assets return on investment St. Jude Children s Research Hospital

17 CHAPTER ONE Introduction and Review of the Literature Introduction The call for government intervention in the adoption process for Health Information Technology (HIT) is based on the widespread belief that the diffusion of HITs is too slow to be socially optimal. Innovations in information technology (IT) have improved the efficiency and quality of many industries; however, healthcare has yet to realize the tremendous potential of information technologies. It is widely perceived that, although some administrative IT systems, such as those for billing, scheduling, and inventory management, are already in place, little progress has occurred in adopting clinical IT, such as Electronic Medical Records Systems (EMR-S) and Clinical Decision Support tools, which would be the most useful systems for improving the quality, efficiency, and provision of more-integrated healthcare. Few rigorous studies are available today that analyze the current level and speed of adoption of IT in different types of healthcare organizations, the factors that influence adoption, and expected diffusion patterns. The sparse literature that is available shows high heterogeneity in HIT-adoption behavior among healthcare providers with different characteristics. Thus, it is important to identify the characteristics and factors that influence adoption and to explain the forces behind them, to evaluate the effect of potential policies, and to suggest what the targets of such policies should be. This report informs the HIT policy agenda by evaluating the current state and dynamics of the HIT-adoption process. It helps focus HIT policy initiatives by identifying which healthcare providers lag behind and need the most incentives to adopt HIT. This basic exploratory analysis involves an objective evaluation of the current state of HIT adoption, to provide a rationale for the policies that stimulate HIT adoption, identify the target population for such policies, and build hypotheses about different factors that affect adoption and could be used to leverage policy. Our research is primarily based on the quantitative analysis of the HIT-adoption data, but 1

18 2 The State and Pattern of Health Information Technology Adoption the results are interpreted through our understanding of the relevant literature and qualitative information collected through site visits and interviews. As part of a larger HIT project, the RAND team visited 13 sites of healthcare organizations, including Trinity Healthcare System, Kaiser Permanente, Mayo Jacksonville Healthcare Center, and others, conducting open-ended interviews about their experience with HIT adoption. In addition, HIT experts, such as Dr. David Lawrence, and software vendors, such as Cerner and GE (General Electrics), were interviewed about their vision of HIT diffusion in the United States, its promises and pitfalls. The literature of interest includes empirical literature that analyzes HIT-adoption patterns among different healthcare providers, the reports on the surveys that ask about motivations and barriers for HIT adoption, and surveys of HIT adoption, which we used to compare with and augment our HIT-adoption estimates. This chapter presents the background for our study, covering the empirical literature on HIT-adoption patterns and the factors that influence HIT adoption, which compares to our own research. Chapter Two presents our estimates of HIT adoption and augments them with estimates from alternative surveys. Chapter Three provides our analysis of HIT-adoption patterns, including univariate and multivariate analyses of the factors and characteristics that are related to HIT-adoption behavior. Chapter Four summarizes results and presents conclusions. Literature Findings on Factors That Relate to HIT Adoption and the Influence of HIT This brief overview of the literature on HIT and HIT adoption focuses on the factors that are related to HIT adoption and on the incentives that are driving the adoption process. The literature includes empirical evaluations of the effects of HIT on the performance of healthcare providers, which may drive their decisions on HIT adoption. The articles on these topics were found through the PubMed database and supplemental Internet searches. Most studies have discovered a relationship between the financial well-being, size, and productivity of a healthcare facility and its level of HIT adoption. Nevertheless, it has always been difficult to assert the causality of this connection: Whether wealthy and more-productive hospitals can afford a strategic investment in HIT or whether HIT has positive effects on the hospital s performance. The Most Wired report (Solovy, 2001) by Hospitals and Health Networks and Deloitte Consulting shows that the most-wired hospitals the most HIT-advanced, measured by HIT applications, connectivity among the components of HIT systems and among different types of providers in the organization, etc. have better control of expenses and higher productivity, characteristics that were measured in terms of greater access to capital as a reflection of credit ratings. They are more efficient as measured by lower

19 Introduction and Review of the Literature 3 median expenses per discharge and more productive as measured by full-time equivalent staff (FTE) per adjusted occupied bed, paid hours per adjusted discharge, and net patient revenue per FTE. Parente and Dunbar (2001) found that hospitals with integrated information systems have higher total margins and operating margins than those hospitals that do not have integrated information systems. However, their results were unable to disentangle the endogenous relationship between IT investment and profitability. They found that hospitals investing in healthcare IT had a higher total profit margin. However, it could also be that wealthier hospitals, with greater profits from operations and total assets, invested in IT. The multivariate regression analysis that Parente and Dunbar conducted showed no effect of HIT on the operating margin, suggesting that healthcare IT had little effect on performance and that the presence of IT could simply be a wealth effect. Wang et al. (2002) studied the factors influencing hospital HIT adoption, using a sample of 1,441 hospitals located in metropolitan service areas (MSAs) in the United States in The results partially support the conclusion that managed care turbulence the economic and market factors that cause competitive behavior from non managed care organizations positively influences the adoption of IT strategies in hospitals. Hospitals operating in a competitive environment are more likely than others to adopt IT. Hospitals with more staffed beds and more-complex services show a higher rate of adopting IT applications. The findings also show that hospitals with more information processing are more likely than others to adopt IT systems. Wang et al. s results also show that hospitals affiliated with a multi-hospital system and those that are for-profit are more likely than others to have managerial IT applications. From a financial perspective, the findings indicate that hospitals with higher cash flows, revenues per bed, and operating margins are more likely than others to adopt healthcare IT systems. Parente and Van Horn (2003) took a close look at differences in adoption behavior between for-profit and non-profit hospitals. They used panel data based on the Healthcare Information and Management Systems Society (HIMSS)-Dorenfest database and merged it with the American Hospital Association (AHA) and Healthcare Cost Report Information System (HCRIS) files, using a very broad definition for clinical IT: patient care systems. They found that the marginal effect of IT on for-profit hospital productivity is to reduce the number of days supplied, whereas, in non-profits, the marginal effect of IT is to increase the quantity of services supplied. Throughout most of the study period ( ), they found a much higher rate of adoption of patient care IT systems in non-profit hospitals than in the forprofit hospitals. At a very general level, they did not find a relation between the financial performance of the hospital and adoption of the IT system. The results of Parente and Van Horn s regression analysis on the factors of adoption suggest that for-profits are less likely to have an IT system, and, when they

20 4 The State and Pattern of Health Information Technology Adoption do, it is positively affected by the financial position of the hospital. Non-profits, on the other hand, are more likely to have a HIT system, to adopt the system earlier (negative coefficient on the time trend), and to make the investment when they have poor financial performance. Full-time equivalent employees per hospital bed (a crude measure of efficiency) was not related to whether the IT system was purchased. Hospitals with a higher Medicare case mix (sicker patients) were more likely to invest in IT. Parente and Van Horn also found that the higher the share of government-financed revenues (Medicare and Medicaid) is, the lower is the probability of clinical HIT adoption. Parente and Van Horn also studied the effects of having clinical HIT in place on five different measures of efficiency: FTEs per hospital bed, length of stay (LOS), return on assets (ROA), case-mix-adjusted cost per patient-day, and case-mix-adjusted cost per discharge. Their study did not find an effect of IT on those dependent variables measuring efficiency in the non-profit hospitals. However, those variables are significant in the analysis of for-profit hospitals: IT tenure the number of years since a HIT application was adopted serves to reduce LOS and each case mix adjusted cost measure, and it has a positive effect on ROA and FTEs per bed. These effects might be expected, given the for-profit orientation of the hospitals. In summary, IT appears to have a significant effect on multiple dimensions of for-profit hospital performance and no perceptible effect on non-profit hospital performance. Parente and Van Horn also evaluated the effect of IT on hospital production capacity, measured as admissions, bed-days, and other services, allowing for the complementary and substitute effects that IT may have for labor and capital (measured, in this specification, as hospital beds). They found that IT increases the discharges of non-profit hospitals, which is consistent with non-profits functional objective of maximizing the quantity of services provided within a community. For for-profit hospitals, IT has a negative effect on the number of patient bed-days and the costs associated with staffing beds for those days. Parente and Van Horn hypothesize that, in the world of managed care, for-profit hospitals are maximizing profits by using IT to reduce the number of inpatient hospital days. However, IT appears to have no statistically significant effect on the length of stay for non-profit hospitals and the volume of admissions within for-profit hospitals. Borzekowski (2002a) examines the adoption of hospital information systems (HIS) in connection with the financing of health. The results indicate that state price regulations slowed the adoption of such systems during the 1970s. In contrast, hospitals increased their adoption of HIS in response to the implementation of Medicare s prospective payment system. The author suggests an explanation for the results: In the early years, these systems did not have the ability to save sufficient funds to justify their expense, and adopters in particular, non-profit hospitals were motivated by factors other than cost. By the early 1980s, this situation had changed: Hospitals with the greatest incentives to lower costs were now more likely to adopt such tech-

21 Introduction and Review of the Literature 5 nologies. The finding about the initially causal effect of the diagnosis-related groups (DRG)-based Medicare prospective payment system may suggest a set of policies to promote HIT investment based on incentives for the hospital to improve its costefficiency. Another study by Borzekowski (2002b) measures the impact of IT use on hospital operating costs during the late 1980s and early 1990s. He finds that the most thoroughly automated hospitals are associated with declining costs three and five years after adoption. At the application level, declining costs are associated with the adoption of some of the newest technologies, including systems designed for cost management, the administration of managed care contracts, and for both financial and clinical decision support. The association of cost declines that lagged IT and the cost patterns at the less-automated hospitals provide evidence of strong learning effects.

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23 CHAPTER TWO Estimates of Current HIT Adoption and of HIT Diffusion In this chapter, we set out to derive a population-wide adoption level of administrative and clinical HIT applications according to information in the Healthcare Information and Management Systems Society (HIMSS)-Dorenfest database (formerly the Dorenfest IHDS+TM Database, second release, 2004) and compare our estimates with alternative estimates. We then attempt to summarize the current state and dynamics of HIT adoption according to these data and briefly review existing empirical studies on the HIT-adoption process. Approach There is no unique way to measure the adoption of a particular technology, because the definition of adoption varies by the stage in the adoption process and by the type of an adopting entity. Moreover, complex technologies, such as HIT software and hardware, have multiple unique functionalities, components, levels of sophistication, and generations, which make it difficult to identify any one particular technology at a specific point in time. There are two major levels at which technology is adopted: the organization level, at which the HIT system is invested in and installed, and the clinical level, at which the intended users of the information system doctors, nurses, administrative personnel, etc., within that organization decide whether or not to incorporate that technology in their daily practice. In turn, healthcare organizations themselves may have several levels: a larger parent corporation (multi-hospital system or integrated healthcare delivery system [IHDS]), a hospital or ambulatory care center, and departments within a facility or individual physician offices. Technology adoption at the organization level may be more relevant for policy analysis, since it is the organization that makes an acquisition decision. The adoption of technology by the end users within an organization largely belongs in the sphere of organizational management. Nevertheless, the adoption process is related to both levels: an organization would likely invest in a technology only if its users are ready to accept the technology in the near future. 7

24 8 The State and Pattern of Health Information Technology Adoption Because of data limitations and definitional problems, we focus our analysis on organization-level adoption: the healthcare facilities, their parent healthcare system, and affiliated physicians. We depend on general survey data to provide insights into use of the technology at the level of individual clinicians. The adoption process takes some time and, nominally, starts with a contract to purchase a HIT application, system, or service, or an initiative for in-house development. After that, a HIT application is installed and integrated in some way with the organization s information system and infrastructure. It is hoped that doctors and other end users are trained to use the system and that the necessary changes in workflow and processes of care are initiated. As implementation progresses, the share of users of the new technology increases within a provider organization and the technology s functionality expands. Some organizations make use of Electronic Medical Records (EMR) and Computerized Physician Order Entry (CPOE) mandatory for everyone at once; other organizations allow for a gradual increase in adoption within the organization. There is no strict definition of what adopted or implemented means in terms of the percentage of active HIT users among doctors or the depth of their use. Thus, a question in a HIT-adoption survey on whether an organization has implemented HIT could mean different things, ranging from just have installed it to everybody is using it to its full potential. To understand the differences in the adoption levels reported, it is useful to think of the organizational-adoption process in four major stages: 1. Deciding to invest and searching for options 2. Signing a contract to purchase a HIT system from a particular vendor (measured by contracted in our analysis) 3. Installing the system, so that it is ready to use (measured by automated in our analysis) 4. Learning how to use the system, integrating the system into the process of care, and broadening the use of the system s applicable functionalities. This stage may involve multiple levels of improvement in the use of the system, both in terms of the percentage of staff utilizing the system to support patient care and in the degree to which the organization takes advantage of HIT-enabled opportunities to restructure the way that care is delivered or that patients are integrated into the care process. When comparing the estimates of HIT-adoption rates across the many published surveys, we must keep in mind that stages 2 and 3 can be documented and measured directly, whereas stages 1 and 4 are much more ambiguous. But when experts in the field observe HIT implementation, they are usually observing points in time during stage 4, rather than during stages 2 and 3. As a result, the judgment of

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